Northwest CEO says: 'Our passengers will have to pay more'

JOSHUA FREEDAP Business Writer

Northwest Airlines, Michigan's largest passenger air carrier, has matched the fare increase announced last week by Continental and United, and signaled that belt-tightening measures are on the way, too.

Oil has been selling at record highs above $100 a barrel, pushing up the cost of jet fuel and cutting into the income of airlines.

Doug Steenland, chief executive of Northwest Airlines Corp., said the airline will spend $1.7 billion more on fuel than it expected when it emerged from bankruptcy in May.

UAL Corp.'s United Airlines and Continental Airlines Inc. raised some round-trip fares as much as $50 heading into the weekend.

"Airfares have to go up, and our passengers will need to pay more. Airlines simply cannot absorb these cost increases," Steenland told workers in a hot line message recorded over theweekend.

Higher prices will result in fewer passengers, Steenland said, and the size of the airline will need to reflect that.

"First we have to tighten our belt. We need to find ways to preserve cash by reducing capital expenditures and operating costs. Fortunately, we have over $3 billion of cash on hand."

Northwest spokeswoman Tammy Lee said Steenland wasn't talking about aircraft orders, which include Boeing's new 787 and regional jets.

"Our planned aircraft deliveries are financed on favorable terms and adding them to the fleet makes even more sense in a world of high oil prices because they are more fuel-efficient than the aircraft they will be replacing," she said.

On Friday, Delta said it would overhaul its business plan to deal with high fuel prices.

Delta president Ed Bastian and Northwest Chief Financial Officer Dave Davis are both scheduled to speak at an investor conference on Tuesday. Delta CEO Richard Anderson has said that more details about Delta's new business plan would come out this week.

Northwest shares dropped 59 cents, or 6.2 percent, to close Monday at $8.92. Delta shares fell 37 cents, or almost 4 percent, to $9.23. Both have lost more than half their value since earlyFebruary.